How do you do a profit and loss statement?

Once again (for the second time in a week), I’m asking questions on Spoz’s behalf. I don’t mind it at all. :slight_smile:

He’s been inching Green Bear Studios closer to some kind of tangible business reality. (he’s even got an ABN now… wooo!)

But he has just one question at this point: how do you do a profit and loss statement? He told everyone not to be shy, and to give him some intelligence… he’s pretty clueless when it comes to this.

I’ll get him to look at this thread later, seriously. Thanks in advance from both of us, though! :slight_smile:


He’s clueless? He definitely needs an accountant then.

He could buy accounting software and create a workable G/L but he still may not be able to tell where things need to be allocated/prepaid/depreciated/etc. It’s more complicated than he may think and an accountant can save him major headaches.

Seriously. Accountant.

I second that recommendation. I minored in accounting, but when it came to doing “the books”, I left that to my accountant. Most of the concepts in bookkeeping are fairly simple, but there are tons of exceptions in the rules. A good accountant will keep your books with tax advantages in mind. There’s also, “the way the textbook does it” and “the way it’s done in the real world”, a good accountant will know the difference.

I’ll second (or third) Triss’s suggestion. The overwhelming number of new business failures (which means the overwhelming number of new business start-ups–because most fail) are not due to bad marketing or bad business strategies or even a lack of cash; they occur because the new business owner is unaware of the proper control of the business finances. There is a reason why there are classes and college majors and even whole schools devoted to accounting: it is not a matter of simply adding numbers in columns.

Here is an online presentation of overall accounting that I think does a decent job of explaining the interaction of various documents. From this page, you can look at the purpose and actions of the Balance Sheet, P&L, Ratio Analysis, and Growth Sources. It should raise enough questions for Spoz to discourage him from trying to simply throw some data at a spreadsheet and call it a P&L.

I am not trying to denigrate Spoz’s abilities. At the basic level, accounting is not magic and it is not that difficult to grasp. However, the question “how do you do a profit and loss statement?” fairly screams that he is not sufficently educated in that area to try to set it up, himself.

Fourth for an accountant here. Why screw up a good business he’s built for himself simply for lack of accounting acumen?

And screw it up he can. I’ve watched it happen more times than I care to recollect.

I’ve many years with several ventures behind me, and I’d recommend he hook up with a CPA and some decent software. I used Quickbooks, which my CPA used as well. He could take all of my data and make the appropriate ledger entries and fire it back to me. It typically cost me a few thousand a year, less than five, and things were right.

I wasn’t in business to be an accountant, and I needed that help.

Having worked as an accountant and controller for several years I can say with complete confidence, “GET AN ACCOUNTANT” !!! Making a P&L is pretty easy stuff, it’s one of those things covered in the first week, (or so I seem to remember it). So, if you have to ask, the rest of it is gonna be pretty durn tough.

Small tip: if you’re searching online, it’s often technically called the Income Statement

phew… whoa…
and here I was thinkin’ in my own naivity… it was simply a matter of listing one column - “profits”, and another column “loss”… and then doing the math, to come up with the basic total income…

I mean… the whole thing is kind’ve crazy for me, since I’m just a freelance graphic designer starting out… doing some designs for some friends… for some quick cash…

the problem now, is shifting that forward…
and to do it… I all of a sudden need all the logistics…

hmmm… must see if one of my friends has an accountancy background… so I can figure this one…
(at least for now…)

… except if you’re Australian (which I gather Spoz is, given the mention of an ABN) and Statement of Financial Performance is a more common term.

Glad to see you’re seeking outside help, Spoz. I have Accounting and Finance majors (and I work in a related field), but I won’t do my own accounting work. If you shop around with the clear premise that you’re a freelancer just starting out his own business, it shouldn’t cost a whole lot.

Well, this is an example of what we’re saying. What you need to sum are Expenses and Revenue that turn into Profit if you had more revenue or Loss if you had more expense. An accountant helps because s/he can remind you of expenses that you may not consider when you are adding your totals.

The point of calculating these things is that you need to list them correctly in order to do your taxes. Even if you are going to do this all under the table,* you need to be able to correctly figure the types of expenses and revenue in order to predict whether you are more likely to survive or fail.

  • I do not mention this as a recommendation–only as a recognition that some people work this way. In the U.S., you can open yourself to some serious consequences by trying to do everything out of sight of the tax people, because any work you do for a business will very likely be reported to you with a 1099 since they want to be able to itemize their expenses and they need to be able to prove they issued the 1099 if the IRS challenges them. I can’t address Australian practices, of course.

Heh. Don’t worry Spoz, it’s not as bad as all that. As others have pointed out, the main reason to bother with all this is for tax purposes. Agreed that it is really very simple to keep track of income and expenses, it’s whipping all that data into shape for the taxman that adds complications.

Our accountants have nothing but praise for Quickbooks, especially if you don’t carry any or much inventory. They use that for many of their other clients, and I hear that the best thing about it is that it’s very user friendly. Once you become familiar with any software, you will be able to do a lot of the work yourself, very easily. Most of the ‘work’ is simple data entry, putting your expenses into the program and the program keeps track of sales by generating invoices.

For our inventory-based business, we use Business Vision. It has a decent inventory module c/w Bills of Material for manufacturing. Useful for any kind of business that takes some sort of raw materials and turns them into some sort of finished product for sale. But there’s more than one way to skin even that cat.

Anyhow, any software generates an Income Statement based on what you put into it. The accountant will take that info and massage it into whatever shape will best reduce your tax liability.

One last thing: Find someone you like, are comfortable with and can develop an on-going relationship with. Your accountant can be your best friend, professionally speaking, I kid you not.

Good luck. :slight_smile:

You know, I had much the same thoughts as Spoz about the profit and loss columns. So this thread is really teaching me a few things, even uf I don’t need to know them (yet)… that’s always an interesting dynamic.